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Economics 20 Apr 2018

What’s the Eurosystem and what is it for?

The Eurosystem is the monetary authority of the euro area. It comprises the European Central Bank (ECB) and the national central banks of the Member States whose currency is the euro. Its primary objective is the maintenance of price stability, and specifically, keeping inflation in the euro area (calculated based on internal stats of the ECB) “close to but under 2 per cent.”

This mission also includes, as stated in the Eurosystem’s website, safeguarding financial stability and promoting European financial integration. The Eurosystem aims for effective communication with the citizens of Europe.

The authority is also committed to conducting relations with European and national authorities, always in full accordance with the Treaty provisions and with due regard to the principle of independence.

For that, it has three instruments: 1) permanent facilities, that is, operations to increase or reduce daily liquidity in the system and overnight rates; 2) open market operations, through which it injects liquidity through central bank auctions; 3) minimum reserves, which it applies to the entities that operate in the Eurozone.

The Eurosystem coexists with the European System of Central Banks (ESCB), which also comprises non-euro member states. Currently, the Eurosystem is made up of Germany, Austria, Belgium, Cyprus, Slovakia, Slovenia, Spain, Estonia, Finland, France, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands and Portugal.

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